The U.S. Department of Labor's proposed fiduciary rule regulations could destabilize state life insurance markets, disrespect the Internal Revenue Service, weaken career agents' employee benefits and hurt insurers' ability to offer some well-established, popular life and annuity products that have not caused any noticeable problems.
Regulators, executives and agents in the life and annuity sector make those points in some of the 19,000 letters posted on the comments page for the DOL's draft investment advice fiduciary definition and related regulation drafts.
What it means: Even if you've read many articles about the fiduciary rule drafts, there could be interesting details that you've missed.
The process: The Labor Department posted the fiduciary rule drafts in October 2023. Regulations were due Jan. 2, in spite of pleas by financial services organizations and bipartisan groups of members of Congress for extensions.
In the drafts, the department acknowledges the value of commission-based compensation arrangements for life insurance and annuities.
The department would also require agents, advisors and others helping with rollovers of assets from 401(k) plans and individual retirement arrangements into other arrangements to assume fiduciary responsibility and put the retirement savers' interests first, rather than simply assuming the responsibility to act in savers' best interest.
Many commenters focused on general concerns about what the added, complicated, potentially unclear responsibility would do to the overall life and annuity market.
Kent Mason, a partner with Davis & Harman, wrote on behalf of a group of clients that included insurers and asset managers, that an earlier version of the DOL fiduciary rule effort devastated retirement savers' efforts to use annuities to prepare for retirement.
In the first half of 2017, when the earlier version of the new DOL fiduciary rule approach was moving in, total individual U.S. annuity sales fell to the lowest level since 2001, according to LIMRA statistics cited by Mason.
Other life and annuity sector commenters drew attention to specific concerns they found in the drafts.
Here's a look at seven of the concerns.
1. The proposal could destabilize state life and annuity markets by pushing major issuers to the sidelines for a decade.
Doug Ommen, Iowa's insurance commissioner, noted that the draft regulations would let the Labor Department penalize insurers and insurance producers that violate the retirement asset rollover advice rules by shutting them out of the rollover market for 10 years, without coordinating with state insurance regulators or even notifying them about the bans.
Those kinds of 10-year bans could interfere with states' responsibility to keep the issuers solvent, Ommen says.
2. The proposal could let the Labor Department be unclear about whether or not it had set certain rules.
Ann Kappler, Prudential Financial's general counsel, asserts that one key provision could affect certain types of investment transactions.
In the preamble, or official introduction to the regulation, DOL officials appear to suggest that insurance- and annuity-related transactions would not be affected.
"Preambles are not regulations," Kappler writes. "Interpretations by the department have changed over the course of time."
